We Wasted Ten Years Talking About Performance Ratings. The Seven Things We’ve Learned.

18 November 2018:

I can’t tell you how many meetings I’ve had talking with companies about changing their performance management process. Going back to 2015 articles were written by people like Marcus Buckingham and Ashley Goodall (both personal friends), and many others about the need to change year-end ratings, implement regular feedback practices, and reduce the power of the manager in the process.

Many people cite the research from Personnel Psychology in 1998 and Journal of Applied Psychology in 2000 that raters are biased and unreliable, and that almost 50% of the variation in performance ratings is based on the manager, not the employee. In other words, the year-end review is imperfect, and we need better data to make good people decisions.

Well here we are entering 2019, and the debate rages on. Deloitte Consulting LLP’s BersinTM recently published its High-Impact Performance Management study and found that the process is still “universally despised” (with a net promoter score of -60), yet 96% of companies do performance reviews and 86% use performance ratings in some form.[1]

I’ve been studying this topic for almost 20 years now, and while this is a problem that will never fully be solved, let me try to summarize where I believe we are.

1/ Driven By The Economy, the Purpose of Performance Management has Changed.

The most important question I ask leaders is “why are you doing this at all?” What is the outcome you’re trying to achieve? After all, if managers are good at managing, shouldn’t they be “managing performance” all the time?

In 2006, when we first studied this topic, the research found that 80% of companies said the main goal of the performance process was “competitive assessment.”[2] In other words, the process was designed to put people on a 9-box grid (performance vs. potential), decide who would receive the most money, decide who was ready for promotion, and give managers a tool to coach people out of the business.

One of my clients put it this way: “In some sense, the performance management process is designed to force our managers to have tough conversations. In our company everyone is always ‘nice,’ and we need to tighten the screws on accountability. So now they have no choice, they go through the process, we force the distribution of ratings, and we can really see who the high and low performers are.”

Good enough. I can’t disagree with this idea. Some companies do become complacent and it’s often when the numbers are weak that leaders realize a lot of people are misaligned, poorly trained, or just incapable of doing the work we want. And in that kind of situation, a “forced distribution” model acts as an injection of accountability. I always looked at it as a “temporary shock to the system” to get the company back on track.